Celgene Nabs Option to Buy Acetylon for More Than $1.7B

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In early 2012, Celgene (NASDAQ: CELG) made a seemingly innocuous investment in Acetylon Pharmaceuticals in a deal that didn’t give it any rights to the company, but rather, left it with a non-invasive observer’s seat on the Boston-based biotech’s board of directors.

Apparently, Celgene liked what it saw, because it’s prepared to throw around $1.7 billion more Acetylon’s way if things break right.

Acetylon has struck a deal with Summit, NJ-based Celgene that outlines a potential buyout at the hands of the big cancer drugmaker down the road. The deal has a few different steps. First, Acetylon will get a big $100 million up front payment. In return, Celgene is getting an option to buy Acetylon for a one-time cash price based upon a future independent valuation of the company done by an external source—but with a floor of at least $500 million. Acetylon CEO Walter Ogier wouldn’t specify how long this option period will last, but the company will keep control of its drug development programs for as long as it does.

Acetylon shareholders could reap much more from the deal, however: Celgene has tied another $1.1 billion—$250 million in regulatory milestones and $850 million in sales targets—to the transaction. All told, should Acetylon’s drugs prove to be winners in clinical trials and in the market—hardly a given, of course—the collaboration and buyout combined could potentially be worth $1.7 billion, or more.

At that price, Acetylon’s shareholders—an unusual mix of private financiers, non-profits, public companies, and federal grant sources including Celgene itself, Kraft Group (the holding company founded by New England Patriots owner Robert Kraft), Acetylon co-founder and chairman (as well as Dana-Farber boardmember and technology entrepreneur) Marc Cohen, and the Leukemia & Lymphoma Society—can expect a big return on $55 million in total they’ve invested in the company.

Acetylon president and CEO Walter Ogier

Ogier says that he considered taking Acetylon public prior to signing up for the Celgene transaction—and still might, if the option period expires with no deal—but that he preferred the non-dilutive, less-risky nature of Celgene’s offer.

“There’s just no assurance of pricing in the public markets, and $100 million in non-dilutive capital is clearly a major opportunity for the company,” he says. “And the price of the company will reflect the added value over time.”

Even so, Acetylon has a lot of work to do before its shareholders can see all that value. Acetylon’s most advanced drug, ACY-1215, is currently in a few early-stage clinical trials for multiple myeloma. For Acetylon to cash out completely … Next Page »